Question

Suppose that this year’s nominal GDP is $16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level five years ago. Using that index, we find that this year’s real GDP is $15 trillion. Given those numbers, we can conclude that the current value of the index is:

Answer 1

higher than 100

Step-by-step explanation:

To get the current value of the index, we can use the GDP deflator to determine this.

To solve this problem

We use this method

GDP deflator = (nominal GDP ÷ real GDP)× 100%

Which we have as;

= (16000000000÷15000000000) ×

100%

= 1.067 × 100%

= 106.67%

Since the answer we got is greater than 100, we can now conclude that the current value of the index is higher than 100.

Answer 2

What this means is that the current value of the index has increased more than 100 which means it is higher than 100

Step-by-step explanation:

In this question, we are asked to calculate the current value of index given the value of the nominal GDP and the real GDP

From the question, we can identify that the nominal GDP is 16 trillion, while the real GDP is 15 trillion

The GDP deflator can be used to obtain the change in current value of the index.

Mathematically,

GDP deflator = nominal GDP/real GDP * 100%

= 16 trillion/15 trillion * 100% = 106.67%

What this means is that the current value of the index has increased more than 100 which means it is higher than 100